Disappointed with your super fund returns? Here’s how to compare and make the right move

Question: I recently received my six-monthly super fund statement and am disappointed with the reported returns. I switched funds about 18 months ago after seeing my original fund perform poorly. I don’t know what to do next and am considering another change to another fund. What do you suggest?

While we all try to maximise the return on our investments, we can also fall victim to the many common mistakes all people make when comparing investment returns.

One of the biggest, is to not compare apples to apples and to ignore the warning printed on every super fund report and advertisement (usually in very small print); “past performance is no indicator of future performance”.

In spite of what we are told in advertising, the brand, the type of fund they are, the supposedly low fees or the fact they are “not for profit” are not the main factors that determine returns.

Fees may play a tiny part, but the most significant factor affecting your fund’s performance is the mix of investments within the fund’s investment options also called, the “asset allocation”.

To make an accurate comparison, you firstly need to compare the like-for-like investment mix of your fund, to alternate like-for like-funds.

The asset allocation is the amount of your super money invested in Australian Shares, International Shares, Property both domestic and international, fixed interest investments again, Australian and International and finally, the amount in cash.

Making matters worse, there is no legal requirement for a “balanced” fund to reflect a certain mix of investments.

Indeed, one fund’s “balanced” option, might be another fund’s “high growth” option.

You can check this by looking at the investment option’s specific asset allocations and then making the comparison.

When making that comparison, ensure you also line up the comparison period exactly.

In other words, use the same start and end dates when doing your comparison.

A three month difference comparing one fund to another, can make a massive difference in the apparent returns.

Next, look to the medium to longer terms return to get a sense of the success of the super fund’s investment managers over time, because that’s what counts.

Anyone can get lucky for a year or two.

In my view, that comparison period should be a minimum of 3 years and hopefully, a bit longer. You can then compare that to similar super funds using free services such at the federal government’s “superannuation heat map” or easier still, the comparison tool offered through the Taxation linked service in your MyGov account.

The latter has your specific super fund’s details and has an interactive service that can assist in comparing your fund to other funds.

Don’t just get sucked in by a funny/clever/deep and meaningful add running on TV or online. Some funds you think might be good, are in fact, very ordinary.

After doing a bit of research, you may discover that a simple switch of the investment option within your own existing fund will expose you to a similar asset allocation or “mix” as the funds that have appeared to do better.

Bear in mind though, these changes will definitely shift the risk profile and if that better return in the other fund is over the last 6 months or so, that will be due entirely to a lift in the share market.

In other words, you could be shifting your asset allocation into a more risky investment mix.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.